Risk Management

Risk management is a vital part of trading success. Keeping losses small and protecting (y)our capital will not only help you grow (y)our account but also prevent you from giving back to the market what you got.

First, you need to decide your position size and by that We mean how much you want to risk on a particular trade be it 0.5%, 1%, 2% and so on.

You decide based on your conviction in that trade idea, but if you're not yet experienced in that part, you can just use a fixed percentage for all your trades.

Second, decide where you're going to put your stop loss compared to your entry. For example, you can use both the ADR (average daily range) and some technicals just for structure, so that my stop loss is neither too close nor too far as you should give your trades some room “to breath”. If you put your stop losses too close, you increase your risk of being stopped out prematurely.

Your trade size will be calculated based on the distance between your entry, your stop loss and the amount you decided to risk, so in the end if you end up being stopped out you lose only that planned amount. Never move your stop loss further out if the price is going against you.

Third, for entries some use technicals and some catalysts (fundamental developments like economic data, news, reports and so on). I prefer catalysts because I can expect if that particular thing will move the market in my direction. If it starts to do the opposite and it even breaks the levels I marked as kind of barriers, then I cut the trade because it's not playing out as I expected it to.